Short-Termism...again 

Last week, our Blogpost focused on three rather fundamental lessons which can be learned from the Conservatives' poor performance in the recent General Election.  These were hardly profound in nature, but they did seem to us to be obvious - and to have a direct correlation to our business models as IFAs.  This week, I wanted to develop a little on this theme.

Politicians are notoriously short-term in their outlook.  Ordinarily, we expect to change our Government every four or so years, but under Cameron and May, it appears that the pace has hotted up somewhat.  This is never a good thing.  The usual time-frame is bad enough - always encouraging the focus to be on the politics, rather than the more substantive issues of economy and services.  I make the assumption that politicians do make some kind of a difference, rather than merely generate white noise and fill column inches in newspapers, and I appreciate that this assumption is to a great extent debatable. 

Short-termism is a curse.  It encourages the whole lamentable business of sound-bites as a proxy for real engagement.  It fosters lazy thinking, rather than a serious commitment to intellectual activity.  Whilst those in leadership express some concern for longer-term planning, we know that they'll never be in power for long enough to see it through, and so what we see in practice is an interminable serious of policy flip-flops, few of which carry any real substance with them.  It's perhaps almost too easy to point the finger at our politicians in this respect, but the same culture prevails all over the place.  Those highly-paid Regulators, who wield a kind of absolute power, never seem to be around for long enough to be accountable for the inevitable ineptitudes which the rest of us just have to struggle with in the real world.  There is a lucrative, fantasy world for such individuals, one apparently without consequences, but one which we are paying for.

And intermediaries are far from immune from the same tendencies.  Thankfully, we don't see much of it within ValidPath, but I am repeatedly struck by how many other networks and advisory firms are still wedded to forms of indemnified remuneration, where everything comes up-front, and there's little left for the longer-term.  It's a business model which is extraordinarily prone to risk - and, as other networks target their Members for turnover based upon this category of business, it's evident that nobody is thinking about the potential consequences.  You can bet your bottom dollar that when the next recession or financial crisis hits, and this business lapses (as it will), the networks won't be slow to make their demands.  It's a cycle, one that we ought now to have broken out of, but which persists in the short-term financial world, where building real value simply isn't within the plan because it demands a longer-term commitment.

IFAs may exhibit short-termism in other ways, even if we don't write protection business on an indemnified basis, along these kinds of lines:

  • The focus on high-net-worth clients, because only these clients can pay us sufficiently large fees right now
  • An emphasis which revolves around acquiring new clients (almost on any terms), rather than the thoughtful development of our services to existing clients
  • The continuation of a transactional emphasis, rather than the more relational discipline of financial-planning
  • An obsession with flash or exotic financial products, accompanied by a rather laissez-faire attitude towards the likely consequences
  • A reluctance to entertain the notion of more reasonable fees now, on the assumption of a better revenue-flow in the longer-term
Clearly, not all of us are in a position to take a 'long-term' view, not least by virtue of our age.  But that's not the same thing as abdicating any responsibility for the future, in terms of building a robust, sustainable business model - and seeking to leave behind a lasting legacy of value.  Short-termism is cynical and grasping - it attempts to take as much as it can, in the shortest possible timescale.  Long-termism is hopeful and generous by comparison, but in order for it to have substance, financial-planners need to plan.
Kevin Moss, 16/06/2017